Today’s highly competitive and disrupted business landscape means that companies need to continually adapt strategies to help drive greater efficiency, fuel growth, and deliver value to their customers. One strategy that is becoming increasingly common is outsourcing certain business functions to external specialists. This outsourcing can help to yield major benefits when it comes to things like costs, capabilities, and strategic focus. Realizing the full value of outsourcing strategies though really does require careful analysis of where and how to leverage external partners.

Assessing Outsourcing Opportunities

Companies first need to identify those areas of the business that might be suited for outsourcing. Think things like functions that are transactional, specialized, rules-based, high-volume, or otherwise commoditized. Common areas that could be considered ripe for outsourcing are:

• Customer service and support.
• Supply chain management.
• Facilities management.
• IT infrastructure/help desk.
• Finance and accounting.
• HR administration.

Those functions that are more integral to core strategic differentiation and IP are obviously less suited for outsourcing. So when assessing potential areas for outsourcing, some key areas to evaluate are potential cost reduction, service quality upside, technology benefits, and strategic alignment.

Considering PEO Services for HR

One function with significant outsourcing potential is HR, specifically payroll, benefits administration, compliance, and other transactional activities. Partnering with a Professional Employer Organization (PEO) can yield interesting advantages here. The experts over at VertiSource HR explain that PEO services consolidate payroll, benefits, compliance, workers comp, HR services and more under one vendor. This can enhance compliance, leverage economies of scale, and provide access to superior technology platforms.

According to the National Association of Professional Employer Organizations (NAPEO), there are over 1,000 PEO firms now operating in the U.S., serving over 173,000 businesses and over 4 million workers. The PEO segment has expanded rapidly as employers recognize the efficiency and cost optimization benefits, while allowing internal HR staff to focus on more strategic initiatives aligned to business goals.

Structuring Effective Outsourcing Partnerships

To fully capitalize on the advantages of outsourcing, we must establish the right strategic partnerships with vendors. Key considerations when structuring successful outsourcing relationships are:

• Finding the Right Partner – Conduct thorough due diligence to select partners with the right capabilities, expertise, resources, and cultural fit. Check references.
• Defining Service Expectations – Clearly delineate required service levels, performance metrics, governance protocols, and remedies for deficiencies.
• Data Security – Establish stringent data security, access control, and compliance requirements to protect IP and customer data.
• Pricing Model – Structure fees, incentives, penalties, and payment terms to optimize value and align provider incentives.
• Contract Flexibility – Build in appropriate flexibility to adjust the engagement model as needs evolve over time.
• Knowledge Transfer – Require knowledge transfer and documentation to preserve institutional expertise around outsourced functions.

Focusing Internal Resources on Core Capabilities

A major end goal of outsourcing is freeing up organizational bandwidth to focus internal resources on developing core capabilities and differentiators. Some areas where redirected focus can yield strategic benefits include:

• Enhancing innovation capacity around new products, services, and business models.
• Refining and expanding key differentiating capabilities that drive competitiveness.
• Identifying emerging market needs and growth opportunities.
• Improving speed, agility, and customer centricity.
• Developing next-generation leaders and building a high-performance culture.

The possibilities are extensive, and each company’s strategic context will dictate where redirected resources can be most impactful.

Conclusion

Rapidly changing business conditions make it critical to continually evolve strategies to support efficiency, improvement, and growth. Targeted outsourcing of non-core functions to best-in-class partners is growing in popularity as an effective strategic move. Done right, outsourcing yields cost optimization, service improvements, technology access and strategic focus on developing differentiating capabilities. Companies who leverage outsourcing as part of their strategic toolkit stand to gain considerable adaptability and competitive advantage.